In the wake of the successful 2nd Social Enterprise World Forum held in Melbourne in October it can be claimed that social enterprise has come out of the shadows and is moving towards the mainstream within Australia. No longer is the term social enterprise met with blank stares, ambivalence or questions about the validity of mixing business and social purpose. While some misunderstanding around social enterprise inevitably still exists, there is a growing understanding about this new business model and how it can contribute to sustainable development.
Australia is quickly catching onto the buzz around social enterprise and I predict a slew of articles on the subject, numerous new definitions (50 and counting at the moment), deepening academic and public sector interest, a swath of organisations jumping on the bandwagon (and re-badging themselves as a social enterprise), a plethora of blogs from new social entrepreneurs and, coming soon, the ability to drown in statistics about the size and scale of the sector (or movement).
But all of this slightly misses the point. Despite the hype there are really only three things to know about social enterprise:
- Firstly, social enterprises are businesses (mostly small businesses) and like any business they require hard graft to make happen. With the added complication that the people grafting are not doing it for potential personal reward but to change the particular piece of the world they care about. From experience this makes it even harder to run the business.
- Secondly, like any other business, social enterprises need capital and investors. Given the dual financial and social imperatives this is in short supply. For the current buzz to develop into a truly life changing movement what is needed is a new breed of social investors, with government and philanthropy leading the way in terms of investing into social enterprise. Waxing lyrical about the need for new forms of social capital is my favourite topic at the moment (“that must make you fun at the BBQ” – I hear you say) so I will stop there. It may be the subject of a future article!
- Finally, despite the plethora of definitions and heated debates in certain circles about what is or isn’t a social enterprise there are only really two types of social enterprise: those that can prove their impact and those that can’t!!!
The current Achilles heel of social enterprise and the Australian Non-Profit Sector more broadly is the lack of commitment to and approaches for measuring the value that they create.
Imagine how incredulous it would be if the following was heard:
- “We have a whole range of anecdotal stories about invoices that we’ve paid but no real process to track that those invoices are actually paid”
- “Really it should be up to us as an organisation to decide what areas of financial performance we want to measure and design our own systems accordingly”
- “It is very difficult to track expenses payments so we don’t bother”
- “We’re not really funded to monitor our financial performance so we don’t prioritise that in terms of resource allocation”
If the above were the case the supply of investment capital, government contracts and working capital would dry up very sharply. No-one would invest without assurance that their money was being invested wisely.
BUT substitute the ‘financial terms’ (in italics) for corresponding ‘social’ terms and there would be sage-like nodding at how pragmatic an approach this is given that measuring social value is a very difficult thing to do!! But just because it is difficult doesn’t mean you don’t try – but not trying is a game that many non-profits, philanthropists and the government regularly play. It is an indication of the immaturity of many social investment decisions that are made, where anecdote prevails as the main standard of measurement of success!
So what is the answer? What should social investors (government or philanthropists) do? How can social enterprises respond to the challenge of measuring the social value they claim to produce?
One approach being developed is Social Return on Investment (SROI). The tool originated in the US in the 1990s and has been through a number of iterations as it has spread into Europe. A ‘Mark 5’ version has just been developed by a range of organisations in the UK (launched May 09) backed by UK Government investment. The new SROI approach is based around seven key principles:
- Understanding what you are aiming to Change (the outcomes)
- Engaging all the Stakeholders to understand what outcomes they are seeking
- Focus on what is Material in terms of measurement
- Be Transparent about any assumptions you make
- Don’t Overclaim results – but factor in what would have happened anyway, how sustainable the change is, who else contributed to the change and whether there were any negative consequences
- Place a Value on the results using financial proxies
- Verify the results and publish them (warts and all)
These principles underpin a methodology that is based around good practice in evaluation, due diligence, cost-benefit analysis and social accounting. SROI is a ‘magpie’ in that it has borrowed the best from other approaches. The SROI methodology can be used to forecast potential social return prior to the investment into an enterprise or program or it can be used to evaluate the effectiveness of that program or enterprise. Ultimately the aim is for SROI to become part of the DNA of any social purpose organisation: that measuring and proving their social value is a core activity, not a peripheral sideshow. It should help social investors (whether government or philanthropic) to make smarter, more informed investment decisions.
The Mark 5 version is being tested with a range of social enterprises and non-profit organisations in Australia. Already it is providing interesting data:
- The Beacon Foundation is a not-for profit charitable trust. It aims to encourage each young person to develop an independent will to achieve personal success for themselves and their community. Its focus is to address the issue of youth unemployment through developing and implementing original and innovative projects. Beacon encourages self-help in young people, drawing on the strength and resources of their local communities and businesses. Their vision is to foster an Australia in which young people have the desire, motivation and the opportunity to reach their full potential. By enhancing the school careers curriculum through deepening engagement between schools, businesses and the local community, Beacon’s No Dole program increases students industry knowledge, experience, networks and emotional intelligence thereby reducing the incidence of youth unemployment and underemployment. An evaluative SROI analysis of two of the Beacon Foundation programs that SVA has invested into indicates that for every dollar ($) invested by philanthropists or government there is approximately eleven dollars ($11) of social return. The main areas of cost benefit are in reduced welfare payments and increased tax revenue. For more information on the Beacon Foundation see www.beaconfoundation.net
- Fair Business is a new organisation established in mid 2008. Fair Business buys exiting or starts new businesses to create employment for people who have been long-term unemployed. Fair Business has acquired a coffee roasting and retail business in Melbourne, a property services business in southern NSW and recently started a new property repairs business in Western Sydney. Fair Business believes that by providing real work for real pay within a supportive working environment they can help people who have been excluded from the labour market to improve their self confidence, increase their self esteem and make the transition back into mainstream employment. SVA has been supporting the development of Fair Business. As part of this support a forecasted SROI was carried out. This indicated that for every dollar of potential investment Fair Business would be returning approximately $6.50 of social return. As above, this potential cost saving was identified as coming through reduced welfare payments and increased tax revenues for government. This forecasted SROI assisted SVA and the philanthropic investors it works with to make a more informed decision about their philanthropic investment decision. For more information on Fair Business see www.fairbusiness.org.au
Social Ventures Australia (one of Australia’s leading philanthropic and social investment organisations) is leading the way in developing SROI within Australia. Although the initial focus has been around employment creation social enterprises as we’ve tested the approach, SVA has the vision that impact measurement and social performance reporting becomes embedded within the non-profit sector in Australia. We understand that SROI is not the finished article or the ‘holy grail’ in terms of impact measurement. But it is a good tool in terms of taking the first steps in the journey of tracking social performance.
It is our belief that social enterprises could lead the way in this by becoming the early adopters. If they do then the sector will move from being flavour of the month to a growing maturity. And social investors (whether government or philanthropic) will have more confidence in the investment decisions they are making.
About the Author
Kevin Robbie is the Director of Social Enterprise Development at SVA. His role involves the development of an innovative social enterprise investment fund, managing the projects that support SVA’s portfolio of over 30 social enterprises to develop and overseeing the development of impact measurement approaches within SVA.
Prior to joining SVA, Kevin was on secondment to the UK Government’s Cabinet Office advising on the role of social enterprise in employment creation for those seriously disadvantaged in the labour market and the development of impact measurement. He was previously the chief executive of Forth Sector (www.forthsector.org.uk) one of Scotland’s leading social enterprises.
Copyright 2009, Kevin Robbie, Social Ventures Australia. All rights reserved. All material in this article is the Intellectual Property of Kevin Robbie, Social Ventures Australia and cannot be reproduced, copied, published, quoted or disseminated without the prior permission of Kevin Robbie, Social Ventures Australia.
Tags: entrepreneurship, social ventures